In November 1843, William Russell was the first non-Indian to attempt settlement in the Molalla area.  After only a few weeks, he was driven off of his land claim by the Molalla Indians, and he did not reestablish his land claim until 1845.  William H. Vaughn, also pioneer of 1843, was the first non-Indian permanent settler in the Molalla area, establishing his land claim on the Molalla Prairie in 1844.  The fertile soil, ample water and rich grasses of the Willamette Valley soon lured other settlers to follow, and gradually much of the land, once the favorite hunting grounds of the Molalla Indians, was under cultivation.

On April 9, 1850, after the first post office was established near the present community of Liberal, approximately three miles to the north of Molalla, and Harrison Wright was the first Post Master.  Molalla has the distinction of having one the five oldest post offices in the State of Oregon.  It was discontinued in 1851 and reestablished December 2, 1868.  Although available records do not give the location, it is assumed that this is the date it was placed near what is now the center of Molalla.

By 1856, Molalla was a thriving agricultural center.  Legend has it that two Indian trails, east-west and north-south, met at the present intersection of Molalla Avenue and Main Street, and as a natural consequence, a town developed.  The first schools were established during this time, and by 1857, the first general store opened.  Molalla developed as an important trade center, and later, as mills were established, as a lumber manufacturing town.

The year 1913 was a magic year for Molalla.  The first railroad, the Willamette Valley Southern, steamed into town.  With the railroad came a new post office , a new school, and the first weekly newspaper.  The first Molalla Buckeroo Rodeo was held in 1913 and this is the year the City incorporated.

The name "Molalla" has had many different spellings over the years, and there are a number of theories as to its origin.  The City of Molalla takes its name from the Molalla River and the relatively small Indian tribe who had a village at Dickey Prairie at the time the first pioneer settlers arrived in the area.  William Hatchette "Uncle Billy" Vaughan, a pioneer of 1843, claimed that the name originated from two Chinook words, "moolek" for elk and "olilla" for berries, both plentiful in the area at the time.  Although, the Smithsonian Institution recognizes "Molala" as the official spelling for the Indian Tribe.